Asia petchem stocks rebound on US Fed cuts

SINGAPORE (ICIS news)--Petrochemical stocks across the Asia-Pacific on Wednesday bounced back from a two-day meltdown as the US Federal Reserve’s move to cut interest rates boosted investor sentiment.

In a rare policy move outside of its ordinary meetings, the Federal Reserve cut interest rates by 75 basis points to 3.5% on Tuesday, its biggest cut in more than 23 years.

By lowering borrowing costs, such a move should help industry by boosting spending as well as lowering investment costs, and possibly stave off an ?xml:namespace>US recession and a global economic slowdown.

Japanese chemical stocks jumped 2-6% as the Nikkei 225 index rose 3.4% to 12,994.32 points at 12:00 local hours (04:00 GMT) on Wednesday.

The Standard & Poors/Australia Stock Exchange (ASX) 200 index jumped 4.11% to 5.399.90 points but the Stock Exchange of Thailand (SET) index could not recover from the past two days’ fall-out, dipping about 1%.

The stocks of SK Energy and Honam Petrochemical, however, recovered slightly by 0.8% and 1.8% respectively.

The Federal Reserve interest rate cuts could have boosted market sentiment in South Korea, but “investors are still concerned over US subprime issues and are maintaining a cautious stance now,” Thomas Yi, analyst at Samsung Securities, said.

“I think the interest cuts could not remove all the concerns of the market for the time being. Particularly in the first quarter, the stock market will maintain its weak trend,” he added.

Discussion levels for second half March naphtha cargoes were heard at $831-834/tonne CFR (cost and freight) Japan, up $25-26/tonne from yesterday’s levels, according to a major trading brokerage.

Some traders were, however, worried that if the US economy does not respond positively to the Fed rate cuts, naphtha prices may again see a downturn, despite upward pressure from snug supply.

Prices fell by $38/tonne on Tuesday, following the stock market meltdown.

The Asian toluene market was quiet on Wednesday following the erosion of offers to $905/tonne FOB Korea for any March cargoes on Tuesday evening, down $15/tonne from Tuesday morning levels.

However, traders anticipate prices to firm slightly on Wednesday on the back of stabilised crude values and modest overnight gains in the US toluene market.

A higher offer emerged mid morning at $920/tonne FOB (free on board) Korea for any March cargoes, recovering by $15/tonne. Bids for any March cargoes dipped $5/tonne to $895/tonne before rebounding $10/tonne to $905/tonne.

But trade was scant as the Asia toluene market has been relatively inactive recently, traders said.

Meanwhile, a South Korean polyethylene terephthalate (PET) producer said that there had been no effect on prices so far on steadying crude values.

“Crude will impact on raw material one month later usually. Our deals have been concluded at lower prices because bid prices are decreasing. Demand is weak,” he said.

Another southeast Asia-based orthoxylene(OX) trader added that he didn’t think that the interest rate cut would have any impact on the market.